Bramble Corporation is a small wholesaler of gourmet food products. Data regarding the store’s operations follow:
Sales are budgeted at $400,000 for November, $380,000 for December, and $370,000 for January.
Collections are expected to be 45% in the month of sale and 55% in the month following the sale.
The cost of goods sold is 75% of sales.
The company would like to maintain ending merchandise inventories equal to 65% of the next month’s cost of goods sold. Payment for merchandise is made in the month following the purchase.
Other monthly expenses to be paid in cash are $24,600.
Monthly depreciation is $15,600.
Ignore taxes.
The Correct Answer and Explanation is :
To solve this problem, we need to determine the cash disbursements for Bramble Corporation for the month of November.
Step 1: Calculate the Cost of Goods Sold (COGS)
The cost of goods sold is given as 75% of sales. We can calculate the COGS for November, December, and January.
November COGS = 75% of $400,000 = $300,000
December COGS = 75% of $380,000 = $285,000
January COGS = 75% of $370,000 = $277,500
Step 2: Calculate the Ending Merchandise Inventories
Ending merchandise inventories are desired to be 65% of the next month’s COGS. The formula is:
Ending Inventory (November) = 65% of December COGS = 0.65 * $285,000 = $185,250
Ending Inventory (December) = 65% of January COGS = 0.65 * $277,500 = $180,375
Ending Inventory (January) = 65% of February COGS (not provided, but we will assume the same 75% of sales for February as January, i.e., $277,500) = 0.65 * $277,500 = $180,375
Step 3: Calculate the Beginning Merchandise Inventory
The beginning merchandise inventory for each month is equal to the ending merchandise inventory of the previous month. So:
Beginning Inventory (November) = $0 (since this is the start of the year)
Beginning Inventory (December) = Ending Inventory of November = $185,250
Beginning Inventory (January) = Ending Inventory of December = $180,375
Step 4: Purchases of Merchandise
To calculate purchases for each month, we use the formula:
Purchases = Ending Inventory – Beginning Inventory + COGS
For November:
Purchases (November) = $185,250 – $0 + $300,000 = $485,250
For December:
Purchases (December) = $180,375 – $185,250 + $285,000 = $280,125
For January:
Purchases (January) = $180,375 – $180,375 + $277,500 = $277,500
Step 5: Payment for Merchandise
Payments for merchandise are made in the month following the purchase. Therefore, for November, payments will be made in December for November’s purchases.
Payments for Merchandise in December = Purchases for November = $485,250
Payments for Merchandise in January = Purchases for December = $280,125
Step 6: Other Monthly Expenses
Other monthly expenses are $24,600, which are paid in cash each month.
Step 7: Total Cash Disbursements for November
The total cash disbursements for November will include payments for merchandise in December, monthly expenses, and depreciation. Since depreciation is a non-cash expense, it is not included in the cash disbursements.
Total Cash Disbursements for November = Payments for Merchandise in December + Other Monthly Expenses
= $485,250 + $24,600 = $509,850
Conclusion:
The total cash disbursements for Bramble Corporation in November are $509,850.
I’ll generate the image to represent this information visually.
Here is the financial diagram representing the calculations for Bramble Corporation’s operations. It shows how we calculate cost of goods sold, ending inventory, purchases, and total cash disbursements for the month of November. Let me know if you need further clarifications or adjustments!
